Eur/usd Reaction to ECB Rate Cut Is Ambiguous

Eur/usd Reaction to ECB Rate Cut Is Ambiguous


Quotes from RBC Capital Markets:
-Our European economics team expects the ECB to cut its refi rate by 50bp (to 0.50%). Consensus is for a 25bp cut, but with other responses skewed toward no change. While we think the magnitude of the policy response is uncertain (50bp vs. 25bp), we strongly expect policy rates to be lowered, and so think that skew of risks is wrong. We expect the ECB's deposit rate to be cut by 25bp to 0-0.10%.
-The latest Reuters poll shows traders are split on whether the repo rate will be cut, with 14 of 28 looking for a cut and the others expecting it to be unchanged. If RBC's forecasts materialise, conventional interpretation would be EUR-negative, but in the current environment, the central bank playing its part in crisis resolution may well be seen as positive, particularly for the financial sector. EUR/USD reaction is therefore ambiguous but EUR/CAD and EUR/AUD should soften further.

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